CFCM Seminar: Joaquin Blaum (Brown)

Title:  Global firms in large devaluations

Link to paper (.pdf) 

Abstract:  I investigate the consequences of firms' joint import and export decisions in the context of large devaluations. I provide empirical evidence that large devaluations are characterized by an increase in the aggregate share of imported inputs in total input spending, and by reallocation of resources towards import intensive firms, contrary to what standard quantitative trade models predict. These facts are explained by the expansion of exporters, which are intense importers. I develop a model where firms globally decide their import and export strategies and discipline it to match salient features of the Mexican micro data prior to the 1995 devaluation. After a devaluation, the model reproduces the pattern of low aggregate substitution and firm reallocation observed in the data. Compared to a benchmark without global firms, the model predicts higher growth of total exports and imports, and a smaller reduction in the trade deficit.